RBI bought a record $18.6 billion in the spot market (net) in June 2021 compared with a $5.8 billion purchase in May 2021. In Q1FY22, RBI bought $28.7 billion in the spot market versus a sale of $1.4 billion in Q4FY21. In the forwards market, RBI sold US$ 10.1 billion in June 2021 versus a sale of US$ 5.1 billion in May 2021. RBI’s net outstanding forward position stands at $49.6 billion as of June 2021.

Retail sales in the US dropped more than expected by 1.1 per cent in July 2021 (est.: 0.3% decline) and against the 0.7 per cent increase seen in June 2021. This was led by renewed inflationary concerns. Core retail sales also fell by 1 per cent from 1.4 per cent increase in June 2021. In a separate print, industrial production in the US rose by 0.9 per cent (est.: 0.5 per cent) and against 0.2 per cent in June 2021. This was led by manufacturing (1.4 per cent increase versus 0.3 per cent decline) and mining (1.2 per cent versus 0.5 per cent) activities.

As against expectations (0.5 per cent), the Reserve Bank of New Zealand delayed hiking the official cash rate (OCR), keeping it unchanged at 0.25 per cent. This was in view of fresh Covid-19 cases in the country and current lockdown restrictions. However, official projections indicate that the OCR will be hiked at least once in CY21. A hike is impending in light of faster inflation and strong labour market. In Q2CY21, annualised CPI was at 3.3 per cent (highest since June 2011) and is further expected to inch up to 4.1 per cent in Q3, much higher than RBNZ’s target of 1-3 per cent.

Markets

Bonds: Except US and Germany (stable), global yields closed lower as rising Covid-19 cases led to re-imposition of lockdown restrictions in Japan and New Zealand. Muted demand in China also impacted investor sentiments. UK, Japan, and China’s 10Y yield fell by 1bps each. Crude prices fell by 0.7 per cent (US$ 69/bbl). India’s 10Y yield fell by 1bps (6.24 per cent).

Currency: Global currencies closed lower against the dollar. DXY rose by 0.5 per cent to a more than 3-month high supported by safe-haven demand and better than estimated US industrial production data. AUD fell the most by 1.2 per cent followed by EUR which fell by 0.8 per cent. INR also depreciated by 0.1 per cent following global cues. It is trading higher today while other Asian currencies are trading mixed.

Equity: Global indices ended mixed as concerns over the spread of Delta variant remain. Shanghai Comp (2 per cent) and Dow (0.8 per cent) fell the most, as weaker than expected data from China impacted investor sentiments. Sensex rose by 0.4 per cent, led by gains in tech and consumer durable stocks. It is trading further higher today in line with other Asian stocks.

[Inputs from Bank of Baroda]